Court Of Appeal Clarifies Test For Rectifying Terms Of Written Contract For Common Mistake August 22, 2019

In an important recent decision, the Court of Appeal has confirmed the test for rectifying a contractual document on the grounds of common mistake: FSHC Group Holdings Ltd v GLAS Trust Corporation Ltd [2019] EWCA Civ 1361. In summary, the Court confirmed that to establish a claim for rectification, a party must prove that the document failed to give effect to either:

a prior concluded contract, in which case the terms of the prior contract must be objectively determined; or a common intention shared by the parties, in which case the existence of the intention must be established as a subjective state of mind - though it must also be shown that, as a result of communication between them, the parties understood each other to share that intention. Prior to this decision, there had been conflicting authority and uncertainty as to the state of the law and so appellate court clarification is likely to be welcomed by those in the insurance sector. On the facts of the present case, the Court upheld a decision granting rectification of two deeds on the basis that they did not reflect the parties' subjective common intention (and there was no prior concluded contract).

In particular, the Court disagreed with Lord Hoffman's (obiter) observations in Chartbrook Ltd v Persimmon Homes Ltd [2009] UKHL 38 that, for a case with a fact pattern falling under the second limb above, the test is purely objective and subjective intentions are irrelevant. Leggatt LJ, who gave the judgment of the Court, explained the doctrine as...